Market and Demand Analysis

Introduction: The success of any project depends on the demand for the output produced by it. Catering an unfulfilled need should the ultimate objective of commercial projects, if they should succeed. Identifying the need, or the potential demand for the product is the main issue involved. Identification of the target market: Study of the market needs a detailed analysis of: 1. Whether the consumers can be classified on the basis of • Income groups • Age groups • Industries • Geographical distributions • Sex • Or any combination of these or any other factors, called the market structure. The component of the market which should be targeted should be identified.

2. The nature of demand, i.e. monsoons, personal disposable income, prices, fashion, or any other factor. 3. Size of the market: In case of an existing product, the present market share of the company, that of its main rivals and if the market share should be increased, the hurdles likely to be faced. 4. If the presently known market is not attractive, whether any other markets offer potential for selling the product. Choice of the market strategy: For laying down a clear cut marketing strategy, the following aspects have to be considered:  The channels of distribution, keeping in view those used by the competitors and their efficacy and whether any innovative channels can be identified.

 Advertise – when, where and how? Check on the spending. In case of new product, whether introduction of the same product under a well established brand name will adversely affect the sales and if yes, how to counter such an event.  The price at which the product can be sold, considering the prices of competitors’ products and the ability to withstand a price war.  The nature and frequency of the after sales service required to support the product. Projection of demand: Based on primary data: The following steps are required:  Statement of Objectives – the output required from the study.  Specifications of data required  Design of the sample

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Mode of collection of data Conducting the survey and obtain data Analysis and conclusion

Advantages of Primary Data: i. The accuracy of the study will be high. ii. Analysis will be easier, as data specifically required is collected. Problems in collecting primary data: 1) Sampling involves sacrificing a part of the accuracy to reduce the costs. 3) Reliability is lower if the response required is a question of opinion rather than the fact. 5) Testing of the questionnaire on insiders before survey to avoid vague answer from the respondents. 4) Confidential or embarrassing information may not be responded.

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The appearance and manners of the interviewer and a presence of a third person may affect the responses. 6) Respondents may find it difficult to answer some questions as they do not know the answer. Based on secondary data: Two basic types of sources: Internal and External Internal: The past records of an organization offer substantial information. The information relating to the trends in sales can be used to get first a broad idea of the market condition. External:  Market Research Organizations: Like MARG, ABC , CMIE, Trade Journals etc.  Trade Associations: Like FICCI, CII, Local chamber of industries etc.  Government Research Organizations: Central Statistical Organization, RBI etc.

Advantages of Secondary Data: i. It is available easily and saves time. ii. It may be cheaper than collecting it first hand, if the data required is standard data. iii. Data collected by professional research organizations may be more accurate and reliable. Disadvantages of Secondary Data: i. For providing highly user-specific information, research organizations charge heavily. ii. The user can often have no direct check on the quality of the data collection process of the research agency. iii. The plans of the user to enter into a specific area of the market may not remain confidential. If the research organization or agency or other sources analyzes the data, and provides the conclusions the user needs on the market, there is nothing else to do to form an opinion of the market. But, if only data is available, the data will have to be analyzed and the user will have to make his forecasting.

Projection of Demand using Quantitative and Qualitative Models:  Quantitative Models A. Time Series Projection Models Moving Average Models i. Simple Moving Average ii. Exponential Smoothing iii. Adjusted Exponential Smoothing B. The Cause and Effect Models Regression Models i. Simple Regression ii. Econometric Method iii. Consumption Level Method • Income Elasticity of Demand Method • Price Elasticity of Demand Method

Qualitative Models: Introduction: It is not always possible to apply the quantitative methods because: i. There may not be enough time to make a quantitative estimation. ii. The data required for a quantitative estimation may not be easily available or be too expensive. Qualitative methods, which involve estimating the demand subjectively, are used. These methods are quick and simple, but the element of subjectivity, which is their main defect, should be kept in view while using them. The most popular qualitative methods are: • Field Sale Force Method • Users’ Expectations • Delphi Method • Jury of Executive Opinion Method

Field Sales Force Method: The salesmen are asked to estimate the potential for sales during the forecast period in their territory. All forecasts from each territory are then pooled up and the sales forecast of the entire firm is arrived at. The advantage is: • its quickness and better knowledge of the market changes to the salesmen, and • hence it is reliable forecast without spending money on collection of data and application of forecasting models. The drawbacks are: • When salesmen incentives are based on realization of targets, they tend to underestimate demand. • If allocation of scarce resources are based on demand projections, there may be a tendency to overestimate demand.

Users’ Expectations Method: Instead of the opinions of the salesmen, the buying plans of the customers may be found out directly from them. o Customers may be contacted by sending questionnaires or through telephonic interviews. o Though the bias of the salesmen does not color the output in this method, the forecast is still influenced by the subjectivity, errors and changes in buying plans of the customers. o This method calls for a large staff to carry out the survey for a large organization. o Positive aspect: This method gives first hand knowledge of the customers’ expectations, possible improvements and competitiveness of the product in terms of quality and price. This method is used by relatively small organization and where it has limited number of customers within the small territory.

Delphi Method: Estimates are called from a group of people considered to be experts in the field. But, the group ( panel of experts) is not allowed to meet and discuss or debate each other opinion. Individual experts are asked to give their estimates independently. This is aimed at avoiding those who are dominant influencing the opinion of the others. A panel coordinator carries out the job of reconciling the views of all of them. Those whose opinions are well off the average are asked to explain the rationale of their position. A second round of questionnaire is sent to them. When a reasonable consensus is arrived at, the coordinator sums up the outcome of the exercise and calculates the demand. Drawback: Considerable skill and tact are required on the part of the coordinator in handling the experts and bringing out a consensus.

However, this is a good method to use when the forecast depends on subjective elements such as forecasting various scenarios and the conditions of an economy in each of the scenarios. Jury of Executive Opinion Method: This method is a variation of the Delphi method. A group of managers is asked to sit together and arrive at a forecast. This method is popular because: • It is quick. • The viewpoints of all the people can be taken into account. • It is more interesting to managers compared to trend projection methods. Limitations: • The opinion of the managers may be biased. • It is sometimes difficult to arrive at consensus quickly.

Conclusion: Notwithstanding any method being used, it is essential to carry out the entire study and analysis of the market meticulously. Errors made at any stage – • identifying the target market, • designing the marketing strategy, or • estimating the quantity of demand – can have a devastating effect on the viability of the project. It is, therefore, essential to have a thorough knowledge of what the market is and how it can be exploited before starting a project.

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